Zaner Daily Precious Metals Commentary
Tuesday, January 28, 2025
Gold and silver recover from Monday's DeepSeek-inspired deleveraging
OUTSIDE MARKET DEVELOPMENTS: Markets have stabilized somewhat after yesterday's DeepSeek-related turmoil. The Chinese startup challenges the dominance of U.S. AI companies by providing similar results at a substantially lower cost.
DeepSeek calls into question the current paradigm of building huge data centers, producing ever more high-end chips, and generating massive amounts of power. This disruption comes just days after the Trump administration announced a multi-billion dollar joint venture to build out U.S. AI infrastructure.
The President said DeepSeek's advancement “should be a wake-up call” for the U.S. tech industry. He remains committed to U.S. dominance in the AI space and views the ability to do it at a lower cost as broadly positive.
The FOMC begins its two-day meeting today. The committee is widely expected to announce steady policy tomorrow. President Trump's pledge to demand lower interest rates notwithstanding, Fed funds futures suggest the next rate cut won't happen until midyear.
While the market continues to lean toward two Fed rate cuts this year, a CNBC survey suggests conviction toward that view is waning. “I just don’t see (the Fed) having any confidence right now on how to proceed with rate cuts from here, especially as we await Trump’s tariff and tax policy,” said Peter Boockvar, chief investment officer at Bleakley Financial Group.
On the other hand, the Bank of Canada and the ECB are expected to deliver 25 bps rate cuts on Wednesday and Thursday respectively. The Bank of England will likely cut rates by 25 bps on 6-Feb. Weak growth is seen as the greater risk, versus stubborn inflation.
With these key central banks in easing mode and the Fed on hold, interest rate differentials seem destined to remain dollar-supportive. The dollar index extended to a six-week low on Monday but appears to be on sounder footing today.
Durable Goods Orders tumbled 2.2% in December, well below expectations of +1.0%, versus a negative revised -2.0% in November (was -1.1%). The drop is attributable to a large drop in transportation orders. Ex-trans rose 0.3% on expectations of +0.4%, versus a negative revised -0.2% in November.
Case-Shiller Home Price Index eased 0.1% to 332.6 in November, versus 333.0 in October. It was the fourth consecutive monthly drop, although each has been modest.
FHFA Home Price Index rose 0.3% to 433.4 in January, versus 432.3 in December. It was the eleventh straight monthly rise, although the annualized pace decelerated to 4.2% from 4.5% in December.
Consumer Confidence fell to a four-month low of 104.1 in January, below expectations of 106.0, versus a positive revised 109.5 in December (was 104.7). The 1-year ahead inflation index rose to a seven-month high of 5.3%. Some of the post-election surge in confidence is being retraced.
Richmond Fed Manufacturing Index rose to -4 in January, above expectations of -8, versus -10 in December. While the index showed improvement for a second straight month, it has been in negative territory for 15 consecutive months.
GOLD
OVERNIGHT CHANGE THROUGH 6:00 AM CST: +$2.07 (+0.08%)
5-Day Change: +$1.37 (+0.05%)
YTD Range: $2,607.16 - $2,782.51
52-Week Range: $1,986.16 - $2,789.68
Weighted Alpha: +31.75
Gold has retraced more than half of yesterday's sell-off as tech stocks stabilized, relieving deleveraging pressure. The retreat from Friday's 12-week high to yesterday's low was less than 2%.
Monday's losses did somewhat relieve the developing overbought condition, which should ultimately help gold move into record territory. While there is some risk of a large double-top forming, I'm not terribly concerned about the bullish scenario as long the market remains above $2,700.
In yesterday's comment, I noted the plunge in China's net gold imports through Hong Kong in December. Gold market expert Jan Nieuwenhuijs writing for Money Metals believes Beijing continues to stockpile at a "frenetic rate," albeit covertly via direct gold exports from the U.K. to China.
Nieuwenhuijs says the PBoC bought 600 tonnes of gold in 2024. Ongoing central bank demand has bullish price implications. "Gold could more than double in price this decade," he said.
Gold rose 25.5% in 2024, its best performance in 14 years and the ninth-best annual performance since 1971. According to the World Gold Council, "market consensus expectations suggest a more modest performance for gold in 2025, but with the potential for upside catalysts as the year unfolds."
A breach of yesterday's high at $2,771.52 would clear the way for another run at the $2,784.96/$2,789.68 highs. New record highs would bode well for attainment of the $2,857.21 Fibonacci objective. Above that, a measuring objective at $2,936 and the $3,000 psychological barrier attract.
This week's lows at $2,735.55/32.23 protect the more important $2,700 zone. The rising 20-day moving average bolsters the latter.
OVERNIGHT CHANGE THROUGH 6:00 AM CST: -$0.049 (-0.16%)
5-Day Change: -$0.675 (-2.19%)
YTD Range: $28.946 - $31.004
52-Week Range: $21.945 - $34.853
Weighted Alpha: +24.55
Silver is consolidating within yesterday's range and between the 50- and 200-day moving averages. The white metal continues to be weighed by global growth risks and trade uncertainties.
If gold can move into uncharted territory, silver should get pulled above $31. Such a move would put silver above the 100-day moving average for the first time since mid-December and set a more neutral tone with potential back to the $32 zone.
Penetration of the December highs at $32.255/306 would constitute a more than 50% retracement of the three-month downtrend and return a measure of credence to the longer-term uptrend.
While the 20-day and 200-day moving averages are holding on a close basis, the downside remains vulnerable. A breach of chart support at $29.553 (13-Jan low) would put the $28.802/783 double-bottom back in play.
Peter A. Grant
Vice President, Senior Metals Strategist
Zaner Metals LLC
312-549-9986 Direct/Text
[email protected]
www.zanermetals.com
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